Merck’s Novel Vioxx Settlement May Set Standard To Resolve Litigation

Merck crafted extraordinary terms in its $4.85 billion agreement to resolve the bulk of Vioxx litigation, which analysts are heralding as a good result for the company.

Under the agreement, each claim against Merck will be evaluated individually and will have to meet specific criteria for inclusion in the settlement. The amount of each award will be based on a point system, with points based on a claimant's age, duration of Vioxx use, and risk factors. And, although the company emphasizes it is not a class settlement, 85 percent of all plaintiffs with pending claims against the company must agree to participate for it to go forward.

"This is huge," said Jami Rubin, an analyst at Morgan Stanley. "It sets a standard for the industry that has historically been brought to its knees" by product liability litigation.

At one point, Rubin said, Wall Street was predicting that Merck faced $15 billion to $30 billion in liability, a figure that had declined recently. The agreement "makes this issue go away at a reasonable cost," she said, and it is structured in such a way that Merck is guarded against future liability.

Merck announced Nov. 9 that it had signed the agreement that morning with law firms in the plaintiffs' steering committee for federal multidistrict Vioxx litigation. In a conference call with analysts and media, company executives emphasized that the settlement was part of Merck's defense strategy, which had been to litigate each case individually.

"This is the right agreement at the right time," Merck general counsel Bruce Kuhlik said during the call. He noted Merck has won the majority of cases that have gone to trial, the statute of limitations has run out in many states, and judges have issued orders requiring non-eligible or non-participating plaintiffs to provide documentation of the factual basis of their claims.

CEO Richard Clark said Merck would continue to defend itself against cases that lack a scientific basis. "We don't intend to make a statement that we will pay for anyone who ingested Vioxx," he said.

Merck voluntarily withdrew Vioxx from the market in 2004 after the data safety monitoring board overseeing a long-term study of the painkiller recommended the trial be halted because of an increased risk of cardiovascular events, including heart attacks and strokes, in study patients taking Vioxx.

Approximately 26,600 lawsuits have been filed against Merck in the United States. Eighteen cases have gone to trial with juries ruling in favor of Merck 12 times (one of these verdicts was set aside and retried with a ruling in favor of plaintiffs) and in favor of plaintiffs five times. Two of the cases resulted in mistrials.

Seven of the cases currently pending against Merck will not be included in the agreement so the parties can pursue an appeal. The company executives asserted that they would continue to defend all claims that are not included in the settlement.

The agreement for a fixed amount of $4.85 billion is to cover 45,000 to 50,000 heart attack and stroke claims out of the 60,000 total claims against Merck in the United States. Based on the adverse event rate seen in the trial and number of patients who took Vioxx, the potential pool of claimants could have been more than 90,000 people (¹ 'The Pink Sheet' Oct. 11, 2004, p. 6).

Merck said it expects to take a pre-tax charge of $4.85 billion in the fourth quarter of 2007 to cover the cost of the agreement. Kuhlik said Merck believes most of the money will be tax deductible. Payments will be paid out in intervals over two years with the first payment expected to be issued in August 2008. Merck will create separate funds of $4 billion for MI claims and $850 million for ischemic stroke claims. Merck had reserved $1.9 billion since 2004 to defend the litigation.

Merck's outside counsel James Fitzpatrick, a partner at Hughes Hubbard & Reed, said in an interview with "The Pink Sheet" that the structure of the agreement is unique, particularly the level of individual evaluation of claimants and the participation required to trigger Merck's payments.

"We looked at the structure of other agreements and tried to take the best [elements of them] and avoid the pitfalls of others," Fitzpatrick said. The most important lesson they learned, he added, was the need to make certain that claimants qualify to participate in the agreement and to assure that they could not opt out of the deal later and go back to court.

To qualify, claimants have to pass through three gates: an injury gate requiring objective, medical proof of MI or ischemic stroke; a duration gate based on documented receipt of at least 30 Vioxx pills; and a proximity gate requiring receipt of pills in sufficient number and proximity to the event to support a presumption that Vioxx was ingested within 14 days before the claimed injury.

Claimants will be assigned points based on the duration and continuation of Vioxx use, their age, time period they took the medication and their individual medical risk factors. The more risk factors and the shorter the duration of use, the fewer points an individual will receive.

The agreement lays out several conditions for the agreement to go forward. No one eligible to enter the settlement process and deemed to receive payment can opt out and pursue court action. Payments are triggered only if 85 percent or more of all currently pending and tolled MI claims, ischemic stroke claims, eligible claims involving a death and eligible claims alleging more than 12 months of use enroll in the settlement process.

Also, law firms on the federal and state plaintiffs' steering committees as well as those who have tried cases in the coordinated proceedings must recommend enrollment in the settlement program to 100 percent of their clients who allege either MI or ischemic stroke.

While the $4.85 billion settlement is significant, it pales in comparison to the $21.1 billion Wyeth eventually set aside to settle fen-phen diet drug litigation. Fenfluramine drugs were withdrawn from the market in 1997 after they were linked to heart valve disease.

More recently, Lilly set aside $1.2 billion to settle claims that its antipsychotic Zyprexa labeling did not adequately warn of the risk of diabetes. Faced with similar suits about Seroquel ,AstraZeneca has adopted a Merck-style fight-it-out strategy, and it will be interesting to see if any eventual settlement also reflects elements of the Vioxx agreement (² (Also see "Rx Industry Faces Wave of Personal Injury Suits; Avandia To Test Honed Skills" - Pink Sheet, 9 Jul, 2007.), p. 19).

But Fitzpatrick said it is probably not useful to compare Vioxx to other product liability litigation since the cases involve different claims and different injuries. Kuhlik noted during the conference call that the type of injury alleged with Vioxx - myocardial infarction and ischemic stroke - occurs at a specific time and objective documentation will be required to show a claimant experienced these injuries. In the case of fen-phen, he said heart valve problems could be diagnosed well after the fact and thus the pool of claimants expanded over time.

- Brenda Sandburg ([email protected])